November 1 – It’s the start of a new month on Wall Street, but it’s also Fed Day, when the Federal Open Market Committee will unveil its updated monetary policy this afternoon, followed by a press conference. We saw private sector employment data released this morning, with more employment and wage data due out over the next couple of days. Meanwhile, the war continues to escalate in the Middle East, and Treasury yields maintained their upward trending channel. Stock futures leaned lower in early trade this morning. However, the VIX is trading near 18 this morning, which is essentially at two-week lows, reflecting easing worry levels on Wall Street. The dollar index is trading near 107.0 this morning, after posting its highest level since the first week of October. Treasury yields fell this morning on the release of the U.S. Treasury’s borrowing plan for the next quarter, with yields on 10-year Treasuries trading near 4.86%, while yields on 2-year Treasuries are trading near 5.07%. Crude oil prices are trading more than 2% higher this morning as they rally off yesterday’s two-month lows, while the grain and oilseed sector was mixed in early trade.
The U.S. Treasury will offer $112 billion of Treasury securities to refund roughly $102.2 billion of privately held Treasury notes that mature on November 15th, raising new cash from private investors of about $9.8 billion. The offering will include $48 billion in 3-year notes, $40 billion in 10-year notes, and $24 billion in 30-year bonds. The Treasury increased its longer dated debt burden by a smaller portion, leading to yields on 10- and 30-year Treasuries to initially drop on the announcement. The total came in slightly below market expectations of $114 billion. The balance of Treasury financing requirements over the quarter will be met with regular weekly bill auctions, cash management bills, and monthly note, bond, Treasury Inflation-Protected Securities (TIPS), and 2-year Floating Rate Note (FRN) auctions.
The steady rise in Treasury offerings at a time when the Federal Reserve and China are reducing purchases is part of the reason that we continue to see elevated interest rates – especially at the longer end of the yield curve. Some analysts estimate that debt security offerings may rise as much as 23% year-on-year in 2024, supporting the higher interest rates that would be needed to uncover enough buying interest. One of the pieces of this puzzle is the massive wealth held by the baby-boomer generation, which was basically forced to put its money into higher risk equities over the past decade due to low Treasury returns. Historical formulas used to assess values between the two options would suggest a massive shift of that wealth from the equities to Treasuries, but baby-boomers also remember the excessively high inflation rates of the late 1970s and early ‘80s, which may make them reluctant to lock in today’s rates, choosing to stay heavier in the equities for now. It comes down to fear and confidence levels for this massive investment group.
Private payrolls increased by 113K in October, according to this morning’s ADP employment report, up from 89K the previous month, but down from analyst expectations of 145K. Keep in mind that the Bureau of Labor Statistics pegged private payrolls up by 263K in September, which was well above ADP’s 89K. The government will update its numbers on Friday morning, with analysts currently expecting it to show private payrolls rising by 143K in October, with overall job growth of 183K, while the unemployment rate remains tight at 3.8%. Average hourly earnings are expected to rise 0.3% month-on-month and 4.0% year-on-year, which would be a decline from 4.2% in September. We should see the monthly JOLTS report later this morning, telling us something about job postings in October.
Forecasts continue to show good rains coming to the driest 20 – 25% of Brazil’s soybean belt this weekend. The rains continue to move forward in the forecast, unlike previous forecasts over the past month. Heavy rains continue to plague southern Brazil, creating quality issues for its wheat, but supporting good potential for corn and soybeans. Overall, we’re still looking for a soybean crop similar to the previous year, with something closer to trend yields and reduced expansion this year. However, poor margins will likely reduce corn planting and overall production in the coming season. That could end up slowing the growth of the global corn balance sheet somewhat six months to a year from now, depending on growing season weather for the safrinha corn crop that will be planted in February. The U.S. harvest should continue to move forward in the Midwest this week, with mostly dry conditions in most areas until another system reaches the Midwest early next week. Ukraine reports that Russian warplanes dropped “explosive objects” into likely paths of civilian vessels three times in the past 24 hours, but ships continue to sail.
